2. Reveen Products sells camping equipment. One of the companys products, a

camping lantern, sells for $90 per unit. Variable expenses are $63 per lantern, and

fixed expenses associated with the lantern total $135,000 per month.

Required:

a) Compute the companys break-even point in number of lanterns and in total

sales dollars.

b) If the variable expenses per lantern increase as a percentage of the selling

price, will it result in a higher or a lower break-even point? Why? (Assume

that the fixed expenses remain unchanged.)

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Updated: 03/2016 10

c) At present, the company is selling 8,000 lanterns per month. The sales

manager is convinced that a 10% reduction in the selling price will result in a

25% increase in the number of lanterns sold each month. Prepare two

contribution income statements, one under present operating conditions, and

one as operations would appear after the proposed changes. Show both total

and per unit data on your statements and determine if the proposed changes

will be beneficial to the companys net operating income.

d) Refer to the data in (c) above. How many lanterns would have to be sold at

the new selling price to yield a minimum net operating income of $72,000 per

month?